Donald: Trust and Legacy

A client of twenty years and resident of Florida, Donald* attended a seminar presented by a law firm that promoted the virtues of Trusts. Don paid to establish a Trust and beneficiaries of numerous accounts were changed according to the directions of the law firm and were instated by Don. While he had a great relationship with Financial Solutions Group (FSG) for many years, he took a do-it-yourself approach with the law firm’s assistance, and FSG was not asked to assist him with these changes. Unfortunately, the changes were made incorrectly and with no consideration of the tax consequences.

Don passed away suddenly in 2017.

1. $1.5 million dollars in IRA account money was now taxable and an asset of the Trust
   
2. Don’s spouse was eliminated as a beneficiary of the $1.5 million dollars of the IRA
   
3. $500,000 of the IRA account was intended to be inherited by his only child, who now was not named as one of the primary beneficiaries of the IRA but was the contingent beneficiary of the IRA account.
   
4. Tax now owed: approximately $600,000 (40% of the value of the IRA assets)
   

Throughout his lifetime Don always spoke highly of Financial Solutions Group and his advisor, having a high level of trust in our service and expertise. Knowing this, the surviving family members turned to us for assistance, alerting us to the predicament.

Financial Solutions Group worked with the family to establish their mutual wishes—which were to follow Don’s desires—and to create a path to achieve them. His desires were very clear before he established the Trust. The question now was how to achieve his objectives due to the incorrect beneficiary designations while eliminating the unnecessary tax burden. In this case, with our guidance and partnership with an Accounting and Law Firm, fortunately, Don’s surviving family was able to achieve his wishes for his assets and avoid the unnecessary tax burden.

Today, FSG continues to be the family’s advisor, managing the investment assets of Don’s spouse and son.

Takeaways:

• Beneficiary designation forms can supersede all other estate planning documents. This can apply to Qualified retirement plans such as IRAs, 401(k)s, etc. as well as other Non-Qualified accounts such as Transfer on Death (TOD) accounts.
• Financial Solutions Group can collaborate with the other professionals in your life, working together for your benefit. Open communication with your advisor, keeping them updated on your intentions, is key. Fortunately, this family was aware of the wishes of the client and among them honored his wishes after his passing.
• Be wary of Trust salesmen. Numerous States have banned the marketing and selling of Trusts. Many of these Trusts provide no benefit to the individual and are a ploy to sell other financial products or Trust documents at exorbitant prices.